Commitments and Contingencies | 6 Months Ended |
Jun. 30, 2014 |
Commitments and Contingencies [Abstract] | ' |
Commitments and Contingencies | ' |
4. Commitments and contingencies |
Operating and Capital Leases |
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The future minimum commitments under our operating and capital leases were as follows (in thousands): |
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| 30-Jun-14 |
| Operating Leases | | Capital Leases |
2014 | $ | 2,658 | | $ | 860 |
2015 | | 5,408 | | | 1,162 |
2016 | | 4,198 | | | 112 |
2017 | | 455 | | | — |
2018 | | 466 | | | — |
2019 and thereafter | | 1,290 | | | — |
Net minimum lease payments | $ | 14,475 | | | 2,134 |
Less amount representing interest | | | | | -107 |
Present value of net minimum capital lease payments | | | | $ | 2,027 |
Legal Contingencies |
We were named in a lawsuit filed in September 2010 in the Superior Court of the State of California, San Mateo County (Edwards v. Silver Spring Networks). The lawsuit claims to be a “class action” on behalf of California consumers, and alleges that smart meters are defective and generate incorrect bills. We filed a motion to dismiss this case and, in September 2011, the San Mateo Superior Court granted our motion without leave to amend as to two of the plaintiffs’ causes of action and with leave to amend as to a third claim. In February 2012, the plaintiffs filed an amended complaint, to which we filed an answer denying the plaintiffs’ allegations in May 2012. In August 2012, the plaintiffs filed a second amended complaint, and in September 2012, we filed a demurrer to one of the two claims asserted in the second amended complaint, which was overruled by the court. In November 2012, the plaintiffs filed a motion for class certification. In April 2013, the court denied the class certification motion without prejudice, but allowed the plaintiffs to file a revised class certification motion, which the plaintiffs filed in June 2013. The court denied the revised class certification motion in December 2013. In June 2014, we entered into a general release and individual settlement agreement with the plaintiffs to dismiss the lawsuit against us. Under the terms of the settlement agreement, we agreed to pay an immaterial one-time settlement payment in exchange for the dismissal with prejudice of the pending claims against us and a general release of claims. |
In June 2011, EON Corp. IP Holdings, LLC, a non-producing entity, or EON, filed suit in United States District Court for the Eastern District of Texas, Tyler Division against us and a number of smart grid providers. Other defendants include Landis+Gyr AG (acquired by Toshiba Corporation), Aclara Power-Line Systems Inc., Elster Solutions, LLC, Itron, Inc. and Trilliant Networks Inc. This lawsuit alleges infringement of United States Patent Nos. 5,388,101, 5,481,546, and 5,592,491 (the “EON Patents”) by certain networking technology and services that we and the other defendants provide. We filed amended answers, affirmative defenses and counterclaims in August 2012, September 2012, October 2012 and November 2012 denying the plaintiff’s allegations and asserting that plaintiff’s patents are invalid. All of the other named defendants in the case settled with EON prior to trial, which was held in June 2014. Following the trial, the jury determined that we had infringed certain, but not all, of the claims under the EON Patents, and returned a verdict against us in the amount of $18.8 million. However, the jury also determined that there was insufficient evidence to support EON’s allegation of willful infringement and granted our motion to dismiss that claim. In June 2014, we filed post-trial motions with the District Court seeking, among other things, a judgment as a matter of law to set aside the jury verdict, or in the alternative a new trial. EON disclosed in its post-trial motions that it is seeking pre-judgment interest and attorneys’ fees. We expect post-trial motions to be heard later this year, however the judge has not yet set a date for deciding these motions. All of the EON Patents are expired and therefore EON is not seeking, and there is no possibility that EON may recover, any additional sums as royalties for our sales of products going forward. We believe that the evidence and the law do not support the jury’s findings of infringement, validity, and the award of damages. Moreover, we believe that we have meritorious defenses to EON’s allegations and legitimate grounds for appeal and intend to continue vigorously defending against the action, including exercising all options available to us through the appeals process if necessary. Consequently, as of June 30, 2014, we had not accrued any liability in our financial statements for this lawsuit as we do not believe a loss is probable. Due to the inherent uncertainty in predicting the ultimate outcome of the post-trial motions and the appeals process, we believe it is reasonably possible that this legal proceeding could result in a material loss that ranges from $0 to $18.8 million. In continuing to assess the impact of this jury verdict on our financial statements, we will continue to evaluate the status and outcome of post-trial motions and the likelihood of a successful appeal. |
In September 2011, TransData, Inc., or TransData, filed suit in United States District Court for the Western District of Oklahoma, against Oklahoma Gas & Electric Company (“OG&E”), alleging infringement of United States Patent Nos. 6,181,294, 6,462,713, and 6,903,699 by certain wireless communication-enabled meters, including General Electric Company meters with our wireless modules. We have agreed with General Electric Company to contribute to the indemnification and defense of OG&E in connection with the TransData suit. An early claim construction hearing was held regarding one claim term in February 2013, which the court ruled upon in June 2013. A hearing for the full claim construction was held in September 2013, on which the court issued an order in October 2013. We believe that OG&E has meritorious defenses to TransData’s allegations, and, together with OG&E and General Electric Company, intend to vigorously defend against the action. |
In March 2013, Linex Technologies, Inc., a non-producing entity, or Linex, filed suit against us in United States District Court for the Southern District of Florida. The complaint alleges that certain of our networking technology infringes United States Patent Nos. 6,493,377 and 7,167,503. We filed an answer in May 2013. In January 2014, the court granted the plaintiff’s request for a stay of the matter, pending reexamination of the patents at issue by the U.S. Patent and Trademark Office. We believe that we have meritorious defenses to Linex’s allegations and intend to continue vigorously defending against the action. |
During the year ended December 31, 2013, the Company recorded an immaterial charge related to certain legal proceedings described above. Other than for the matters that the Company has recognized in the consolidated financial statements, it has not recorded any amounts for contingent losses associated with the matters described above based on its belief that losses, while reasonably possible, are not probable. Unless otherwise stated, the Company is currently unable to predict the final outcome of these lawsuits and therefore cannot determine the likelihood of loss nor estimate a range of possible loss. |
We are directly involved with various unresolved legal actions and claims, and are indirectly involved with proceedings by administrative bodies such as public utility commissions, arising in the ordinary course of business. We do not believe that any liability from any reasonably foreseeable disposition of such legal actions and claims, individually or in the aggregate, would have a material effect on our consolidated financial statements. There are many uncertainties associated with any litigation or claim, and we cannot be certain that these actions or other third-party claims will be resolved without costly litigation, fines and/or substantial settlement payments. If that occurs, our business, financial condition and results of operations could be materially and adversely affected. If information becomes available that causes us to determine that a loss in any of our pending litigation matters, claims or settlements is probable, and a reasonable estimate of the loss associated with such events can be made, we will record the estimated loss at that time. |
Customer Performance and Other Commitments |
Certain customer agreements require us to obtain letters of credit or surety bonds in support of our obligations under such arrangements. These letters of credit or surety bonds typically provide a guarantee to the customer for future performance, which usually covers the deployment phase of a contract and may on occasion cover the operations and maintenance phase of service contracts. We have available a line of credit with a bank, which provides for advances and the issuance of letters of credit of up to $50 million. |
During the ordinary course of business, we provide standby letters of credit or other guarantee instruments to third parties as required for certain transactions initiated either by us or ourselves. These letters of credit or guarantee instruments are related to performance guarantees, facility leases and workers compensation insurance. These letters of credit are subject to compliance with financial covenants and other customary conditions to borrowings. As of June 30, 2014, we were in compliance with the financial covenants in the credit agreement. As of June 30, 2014 and December 31, 2013, we had a total of $6.0 million and $9.8 million, respectively, of standby letters of credit issued under the credit facility with a financial institution, of which $0.6 million (A$0.6 million) and $0.6 million (A$0.6 million), respectively, were denominated in Australian dollars. |
As of June 30, 2014, we had a $15.0 million unsecured surety bond. The surety bond provides a financial guarantee to support performance obligations under certain customer agreements. In the event any such letters of credit or surety bonds are called, we would be obligated to reimburse the issuer of the letter of credit or surety bond. We do not believe there will be any claims against currently outstanding letters of credit or surety bonds. |
Our contracts with customers and meter manufacturers typically contain provisions that could result in payments or other liabilities related to late or improper delivery of products, services, installations or operations or failure to meet product or performance specifications or other product defects. Any payments made to customers pursuant to the terms of these provisions are recorded as reductions of deferred revenue. |
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Indemnification Commitments |
Directors, Officers and Employees. In accordance with our bylaws and/or pursuant to indemnification agreements we have entered into with directors, officers and certain employees, we have indemnification obligations to our directors, officers and certain employees for claims brought against these persons arising out of certain events or occurrences while they are serving at our request in such a capacity. We maintain director and officer liability insurance coverage to reduce our exposure to such obligations, and payments made under indemnification agreements. To date, there have been no indemnification claims by these directors, officers and employees. |
Customers and Meter Manufacturers. Our contracts with customers and meter manufacturers typically provide indemnification for claims filed by third parties alleging that our products and services sold to the customer or manufacturer infringe or misappropriate any patent, copyright, trademark or other intellectual property right. Refer to the discussion above under the heading “Legal Contingencies” for a description of certain matters involving our indemnification obligations. |
In our customer contracts, we also typically provide an indemnification for third-party claims resulting from death, personal injury or property damage caused by the negligence or willful misconduct of our employees and agents in connection with the performance of certain contracts. |
Under our customer and meter manufacturer indemnities, we typically agree to defend the customer or meter manufacturer, as the case may be, from such claims, and pay any resulting costs, damages and attorneys’ fees awarded against the indemnified party with respect to such claims, provided that (a) the indemnified party promptly notifies us in writing of the claim, (b) the indemnified party provides reasonable assistance to us at our expense, and (c) we have sole control of the defense and all related settlement negotiations. |
Insurance. We maintain various insurance coverage policies, subject to policy limits and certain conditions that enable us to recover a portion of amounts paid by us in connection with our obligation to indemnify our customers and meter manufacturers. However, because our maximum liability associated with such indemnification obligations generally is not stated explicitly in the related agreements, and further because many states prohibit limitations of liability for such indemnified claims, the maximum potential amount of future payments we could be required to make under these indemnification provisions could significantly exceed insurance policy limits. |
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Historically, payments made by us under these indemnification provisions have not had a material effect on our results of operations, financial position or cash flows. |
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